MTN switches to Reliance after rival Bharti pulls out

MTN Group Ltd, Africa’s largest mobile-phone company, may merge with Reliance Communications Ltd, India’s second-biggest, to offer wireless services to 1.7 billion people after talks with Bharti Airtel Ltd collapsed.

MTN, based in Johannesburg, and Mumbai-based Reliance are in exclusive talks for as long as 45 days to combine their businesses, they said in separate statements yesterday. There is no certainty on the completion or the timing of any agreement, they said, without providing details.

Any agreement will depend on whether Reliance chairman Anil Ambani and MTN chief executive Phutuma Nhleko can agree on control of an operator with a combined market value of more than US$65 billion stretching from the Cape of Good Hope to the Himalayas. Bharti ended talks with MTN after failing to overcome differences over ownership and management.

“Reliance may be one company that could possibly do it,” Apurva Shah, head of research at Prabhudas Lilladher Pvt in Mumbai, said by telephone after Bharti’s announcement on May 24.

“If it was tough for Bharti, it will be tough for other Indian companies,” Shah said.

Reliance declined as much as 4 percent in Mumbai trading, valuing it at US$27 billion, while Bharti, India’s biggest mobile- phone company, gained 4.3 percent, giving it a market value of US$38 billion.

MTN slumped as much as 6.4 percent, paring its value to US$36 billion.

Any investment by Ambani will be in addition to the US$6.5 billion he is spending this year to build a second mobile phone network and increase coverage. India added a record 10.2 million subscribers in March and surpassed the US last month as the world’s largest mobile phone market after China.

Reliance began talks to buy a majority stake in MTN, the Business Standard reported on its Web site on May 24, citing people it didn’t identify.

Gaurav Wahi, a Reliance Communications spokesman, declined to specify which company would control the combined entity in a telephone interview from Mumbai yesterday.

Bharti said it ended the talks after MTN presented a new structure in which Bharti Airtel would become a subsidiary of the South African firm. Billionaire chairman Sunil Mittal and Singapore Telecommunications Ltd would have had to exchange their majority stake in Bharti Airtel for a controlling stake in MTN, according to the structure, Bharti said.

The end of the talks is “positive for Bharti’s share price as this lifts the cloud of uncertainty that was hanging over it,” Shah said.

“From a long-term perspective, it is negative” because Bharti would have benefited from the expansion in its operations, he said.

Nhleko has driven MTN’s expansion north from South Africa into 21 countries throughout the continent and the Middle East, covering a region with a combined population of more than 500 million people.